The U.S.'s historic intervention in the yen last week may mark an inflection point for the dollar, not just against Japan's flailing currency, but more broadly. If dollar/yen has topped out, and the threat of more intervention forces traders to cover their massive short yen position, the spillover to other dollar/Asia crosses is not difficult to imagine.
Does this ease some of the 'beggar thy neighbor' approach to FX policy across Asia? Again, it's a plausible scenario, especially if peace breaks out in the Middle East and the slump in oil prices continues to pull Treasury yields down from their recent highs. A lot of "ifs and buts" in there, but there is a case building that the dollar's 2026 race might be run.
A 20% slump in oil prices over the last 10 days has taken the heat off the Treasury market, at least at the short end, and by extension, the Fed. But debate continues to swirl around what the Kevin Warsh Fed's reaction function will be. Warsh refuses to tell us what his is, so investors are taking their cue from others.
The three FOMC dissenters explained their decisions on Friday, and New York and Philadelphia Fed Presidents John Williams and Anna Paulson have outlined their thinking this week. Is the center of gravity at the FOMC starting to shift? The 9-3 vote to leave rates unchanged last week wasn't necessarily a "dovish hold", and it is likely to be quite different in September. Rate futures only pointing to one fully-priced hike this year. Too timid?
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